Pubdate: Sun, 23 Mar 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Author: Jeffrey Miron
Note: Jeffrey Miron is senior lecturer and director of undergraduate 
studies at Harvard University and senior fellow and director of 
economic policy studies at the Cato Institute.

Are Recreational Pot's Low Tax Numbers Worrisome?


The Colorado Department of Revenue earlier this month released its 
first data on the tax, fee and license revenue from legalized 
marijuana sales in the state. For January, the figure is $3.5 million 
when you combine revenue from medical ($1.5 million) and recreational 
marijuana ($2 million). This implies annual revenue of $42 million 
for Colorado.

The amount collected so far is below other projections. In a 2010 
white paper published by the Cato Institute, I predicted that if the 
federal government and all states legalized, Colorado would collect 
roughly $55 million to $60 million per year. And as recently as 
mid-February, Gov. John Hickenlooper predicted that the taxes, 
licenses and fees on medical-plus-recreational marijuana would 
generate $134 million for the fiscal year starting in July.

This gap between projections and the initial data may overstate the 
shortfall, since the legal marijuana industry could still grow over 
time as more retail shops open. But just as plausibly, the gap may 
grow as other states adopt Colorado's model, diminishing revenue from 
marijuana tourism.

If the lower revenue numbers in Colorado are accurate, does that 
weaken the case for legalization? Not in the least. The possibility 
of increased tax revenue was never the main reason for legalizing 
marijuana. Any added revenue is desirable, since that means taxes on 
all other activities can be lower. And legalization shifts profits 
from illegal traffickers to the population generally, a kind of 
redistribution that most people would endorse.

But the most important benefit is that legalization enhances the 
welfare of those who use marijuana, or would like to do so. When pot 
criminalization is in place, users often fear arrest and fines, even 
when enforcement is modest. Also, users in a black market face 
difficulty determining the quality and safety of the marijuana they 
purchase, as well as paying elevated prices.

Legalization, moreover, helps society generally by eliminating the 
unintended consequences of prohibition.

The worst impact of prohibition is the increased violence and 
corruption generated by black markets. In legal markets, consumers 
and firms resolve their disputes with law enforcement, lawyers, 
arbitration, and the like. In black markets, participants cannot use 
these mechanisms, so they resort to violence. History has shown that 
prohibitions of many goods (prostitution, gambling and alcohol) have 
consistently been associated with elevated rates of violence, such as 
during Prohibition in the 1920s and '30s.

The increased violence and corruption caused by criminalizing 
marijuana is not limited to the United States. America's desire to 
enforce prohibition has led us to push prohibition on Colombia, Peru, 
Mexico, Afghanistan and other countries, with similar consequences. 
The profits generated by illegal production and trade in these 
countries fuel terrorism, since the traffickers use their profits to 
pay terrorists for protection from the criminal justice system.

A different cost of prohibition is diminished civil liberties. 
Standard crimes like theft and violence generate complainants, who 
report such crimes to the police and provide evidence of the crime. 
Victimless crimes like drug transactions do not generate complaints; 
neither a drug buyer nor a drug seller wants to report this activity 
to the police. Law enforcement can therefore only enforce prohibition 
with intrusive tactics like undercover busts, warrantless searches, 
and stop-and-frisk arrests.

Prohibition also has significant directs costs for police, 
prosecutors and prisons. In 2010, I estimated these at roughly $75 
million per year for Colorado. And even if state and city government 
do not reduce their expenditure on criminal justice under 
prohibition, these resources can be applied against crime with true 
victims, and not against those buying or selling marijuana.

But perhaps the greatest casualty of prohibition is general reduction 
of respect for the law. Under prohibition, many people continue to 
buy and sell drugs, mostly without legal consequences. Thus, everyone 
learns that laws are for suckers, and voluntary compliance with 
society's other rules diminishes. Legalizing marijuana is, therefore, 
the right policy, even if it generates no tax revenue. Anything that 
Colorado collects is just icing on the cake. 
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MAP posted-by: Jay Bergstrom